The worst part of the recession cycle is beginning. News from several big sectors like retail, housing, and automotive has already turned bad.
In the last two days, Sprint (S) and GM (GM) have said that they plan to cut thousands of jobs. Citigroup (C) will take out thousands more. Other financial services firms are likely to announce significant lay-offs between now and the end of the month.
Even the tech sector may get "down-sized". Nokia (NOK) has fired 2,300 people in Europe this week. Struggling companies like AMD (AMD), Nortel (NT), and Alcatel-Lucent (ALU) may take out another slice.
When the market looks back at the first quarter of 2008 it may see a surfeit of dismissals. Companies often cut more than they absolutely have to so that they don’t need to go at it again in another quarter.
The Fed has a chance to head some of this off. A rate cut of half a percent won’t do it. Three-quarters might save tens of thousands of jobs. Corporations need a reason to believe that the downturn will be relatively brief. A quarter or two of poor results may be OK. A year of losses will not be.
It would not be shocking if the 1,000 largest companies in the US drop 500,000 people this quarter. The Fed might save some of those jobs.
Douglas A. McIntyre
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